Guarino A (2009), “Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals

We study herd behavior in a laboratory \u85nancial market with -nancial market professionals. An important novelty of the experi-mental design is the use of a strategy-like method. This allows us to detect herd behavior directly by observing subjectsdecisions for all realizations of their private signal. In the paper, we compare two treatments: one in which the price adjusts to the order ow in such a way that herding should never occur, and one in which the presence of event uncertainty makes herding possible. In the \u85rst treatment, traders herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of traders, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, on the one hand, the proportion of herding decisions increases, but not as much as the theory would sug-gest; on the other hand, contrarianism disappears altogether. In bot